To avoid a 2008-level financial crisis, the Bank of England conducts a yearly series of stress examinations on UK banks to gauge a bank’s capability to handle difficult global market situations similar to 2008’s financial crisis.
As the stress tests have finished, the banks wait on the possible results. These include:
- Santander UK
- Standard Chartered
- Lloyds Banking Group
- Royal Bank of Scotland
- Nationwide Building Society
The exams will help the BoE understand the level when institutions need to ask investors for more cash or to help improve their financial capability further.
Dramatic China Slowdown And Eurozone Contradiction
The stress tests included having the banks face off with the reality of a dramatic Chinese slowdown and a huge Eurozone contradiction, which would challenge banks with a negative seven inflation for seven quarters and an interest rate of zero coming from the current 0.5 per cent.
In 2014, Lloyds passed the stress tests along with RBS. Co-op Bank failed. Co-op is unable to take the exams because it had scaled back its operations because of its involvement with different scandals.
According to Analysts at Berenberg, banks will not fall beyond the passing rate set by the BoE.
Analyst for investment group Jefferies Joseph Dickerson said:
“If the purpose of employing a countercyclical buffer is to push back on the financial cycle, we would argue that the loan market in the UK is far from a cyclical peak. Thus, gross mortgage originations are annualising 41% below their 2007 peak.”